Banks add debit card fees

Boston Herald ^ | September 17, 2002 | John Chesto

[SamAdams76]

Buying groceries, gasoline and other items with a debit card could cost you as banks begin charging fees for the increasingly popular option.

Sovereign Bank is the latest bank to pick that route. The Pennsylvania-based bank, which has more than 250 offices in New England, recently began informing customers that it will charge them 50 cents every time they choose the ``debit'' option in the checkout line.

Sovereign's not alone. A recent survey conducted by Jefferies & Co. shows that 20 percent of the nation's 250 top banks use rewards or fees to persuade customers to punch in ``credit'' instead of ``debit'' when they shop. That number is expected to grow.

``This is another fee that banks are working to unpack from services that they used to provide for free,'' said Bradley Dakake, consumer advocate at the Massachusetts Public Interest Research Group.

The big differences between picking credit or debit at the cash register aren't readily visible to consumers.

Pick debit and you pay by entering your personal identification number. Choose credit, and you usually have to sign a receipt. Either way, the money comes out of your checking account.

But banks can make four times as much money off a signature-based credit purchase than a PIN-based debit one. As debit cards increase in popularity, more banks are trying to convince customers to sign their names at the checkout line.

If Sovereign customers choose credit, they won't have to pay a fee and could be entered in a Visa sweepstakes.

But Sovereign customers who choose debit will pay 50 cents starting on Nov. 1.

``We're always looking for ways to improve fee income,'' said Sovereign spokesman Dick Ehst. ``This clearly was one of them. At the same time we're making sure our customers are not disadvantaged.''

Eastern Bank spokesman Joe Bartolotta said his firm has no plans for debit card fees. He said the PIN option is typically more secure, and the Boston-based bank doesn't want to punish customers who choose that alternative.

FleetBoston Financial Corp. charged the fee to some customers before stopping in April, said Fleet spokesman Jim Schepker.

However, Providence-based Citizens Financial Group charges a 35-cent debit fee to customers who don't have at least $5,000 with the bank. The charge affects about 30 percent of Citizens' customers, said Lisa Stanton, a senior vice president with Citizens.

Tony Hayes, director of financial services research at Dove Consulting Inc. in Boston, said banks will increasingly encourage customers to choose signature-verified debit purchases. However, he expects more banks will use rewards instead of new fees.

Hayes said banks typically charge retailers 15 cents for every debit purchase, while they charge 60 cents for each credit transaction.

That's why retailers want customers to use their PIN at the cash register. The industry, led by Wal-Mart, has sued Visa and Mastercard over the debit card fees.

But some banks say they're content simply because customers are reducing paperwork by leaving their checkbooks at home.

``We're happy to have as many electronic transactions as we can get,'' said BankNorth spokesman Brian Arsenault, whose bank doesn't charge any debit card fees.

[SamAdams76]

Ridiculous. Debit card users are saving banks millions of dollars in processing fees with debit cards. Not to mention the millions of dollars they are saving with ATM machines (not having to hire as many tellers). I will never pay 50 cents to use my debit card, even if it means trudging back to the bank to get cash like in the bad old days. Guess the banks might find themselves hiring back all those tellers.

[ikka]

This explains why credit unions are growing like crazy. They have lower or no fees and you can open an account with as little as $25.

[SeaDragon]

Well this sucks. First they tell us how wonderful debit cards are and now they charge us for the privilege of using them.

Sheesh!

[Poohbah]

Are margins THAT tight in the banking business?

Gosh, maybe they shouldn't spend so much f***ing money on making their offices stylish. I was recently in the market for a home loan, and one bank I visited wanted an outrageous rate, but the loan officer's office looked like a modern art gallery...

[Grut]

The minor irritants - like mystery fees and strange accounting practices - at Fleet finally drove us into a local credit union. What a difference!

One example: if you wanted bounceproof checking from Fleet, you had to give them permission in advance to write you a $750.00 loan anytime your checking account was overdrawn by any amount. At the credit union, they transfer in the necessary funds from your savings account and charge you $2.50.

So the answer to idiocy like this is simple: get out. Businesses sometimes need to be reminded that they have to do business with the public, but the public doesn't have to do business with them.

[Drop the Vernacular]

I never understood the appeal of debit cards. Credit cards are much better as a method of convenient payment (that is, you don't carry a balance). There are no fees. You get the benefit of the float. If there is a mistake or fraud, you can fight it BEFORE the money comes out of your bank account (most important difference in my opinion). As far as I can tell, debit cards offer no benefit over credit cards.

If any Freepers use them, I'd be curious to know why...

[Brytani]

I use my Visa debit card, from my credit union (no fee) for nearly every purchase I make (when I can not use the debit card, I pay by personal check or cash) for two simple reasons.

First, I pay no fee to use my debit card, regardless the number of times I use it in a month. Secondly, I have no yearly fee associated with the debit card, as I would with a credit card. I have the same protections on my debit purchases as I would on a credit card. In case of fraud, I am responsible for only the first $50 of the purchase. As for defective merchandise etc, I am left at the mercy of the store I bought from, but in all my consumer years I've never had a problem returning an item purchased.

My husband and I have one credit card with an very low limit that we reserve specifically for reserving hotel rooms, renting cars or purchasing plane tickets. Also we make the occiasional purchase from Amazon.com on it. Other then that, it's never used. If I do not have the money in my checking account, we do not spend the money. This is how we have handled our finances for years and it works for us. Using a no-fee, no possibility of interest debit card saves us in the long run.

[southernnorthcarolina]

You beat me to it; I was about to post much the same. I guess the key words are "don't carry a balance." With on-line banking, automatic transfers, etc., there is no reason -- ever -- to pay credit card interest.

[SamAdams76]

I prefer using a debit card because it is more secure. It doesn't require a signature so it doesn't leave a paper trail for a dishonest cashier (who might take my credit card information and commit fraud). With a debit card, it takes much less time to complete a transaction. Credit card companies are just as ruthless. Even if you are the type that pays them off every month, if you are one day late with your payment, you get whacked with compounded daily interest. But if my bank starts charging these debit card fees, I'll never use it again and will either go back to credit cards or just go back to using cash and checks.

[Raymond Hendrix]

I am about ready to go back to cash again. I did that for years and it worked fine. I am now fighting with an internet provider that has charged my debit card without my permission and does not answer emails or their phone (catalog.com). These plastic cards are not worth the convienience anymore. I will keep one with a very small balance so I don't get ripped off for too much again but that is all.

[LibKill]

My credit union knows that my debit card saves them money (no checks to handle, less wear and tear on the ATM), and so they don't charge for it.

There is an answer for this little annoyance, it's called 'competition'.

Outfits that do not charge for the use of a debit card will be popular. Those who do charge for the use of a debit card will lose business.

The second that my credit union starts charging me for using my debit card, I will find someone who does not.

[sinkspur]

As far as I can tell, debit cards offer no benefit over credit cards.

Exactly. We use credit cards every place that accepts them, but we haven't carried a balance in over twenty years. Airline miles, free hotel nights....I've never seen the rationale behind debit cards.

[PAR35]

I have the same protections on my debit purchases as I would on a credit card. In case of fraud, I am responsible for only the first $50 of the purchase.

While some banks do voluntarily provide more protection for Debit cards than is required by law (and your bank might be one of those) the legally required protections are far less for Debit Cards than for credit cards. In some instances, the consumer can have unlimited liability for fraudulent use of a Debit card.

Findlaw does a good job of explaining the stair step liability for Debit Cards (generally $0 after notifying the bank, $50 up to 2 days, $500 2 to 60 days, and unlimited after 60 days. There are some caveats.)

http://biz.findlaw.com/debt/nolo/ency/36CE716A-D287-414B-992B6EFC72E4557A.html

[Vermont Lt]

As a senior officer in a bank let me answer a few questions for you:

Yes, the margins are that tight.

Yes, ATMs increase the efficiency of banks, but they cost a fortune to install and maintain. They also bring greater risk for fraud. Also, the network charges for "foreign" banks are expensive.

The costs of maintaining the delivery channels is mounting. On line banking--if you dont have it, you are dead. Telephone banking, if you dont have it you are dead...and God help you if someone has to wait more than 30 seconds on the phone! And you need an ATM and branch network that is wonderful and ubiquitous so that you dont have to incure ATM fees. It costs money to have all of this stuff.

Yes, debit cards are convenient and present the same benefit of credit cards. They limit you to the amount of money available to your account. While this is not a problem for most "grown ups" that are posting here it is a solution to problems for many of our customers.

Most credit unions don't pay taxes so they can afford to be more generous. I guess that's ok, but if you think the playing field is level, dream on.

You are also right in thinking that the competition in this market place is intense. You will see different banks compete for different cusotmer bases...and the fees with lure or drive those cusotmers away. The best customers--those with deep relationships (loans, mortgages, HELOCs, Money markets, etc.) will rarely pay a fee. Customers with thin relationships--little money in a no-fee checking account will get stung.

It is expensive to maintain cusotmer accounts that have little money in them. I know how it sounds to say that, but the costs of maintaining data systems, statement rendering, etc. can run anywhere from $6-12 per month, per account. If you don't keep much in it, we don't make much on it.

And finally, for those of you who think that banks are lavish with their spending, let me tell you that is far from the truth. Some folks like the thought of the walnut and cherry desks with the fine paneling in the corner office. Let me tell you that, for the most part, those days are gone. The only places I see that crap is in the offices of the banks that we buy--and we take careful note of that as the former owners leave. Spartan is the word I would use to describe our spending habits.

And that is why our shareholders like us. And our customers as well. We take care of them, and they stay with us.

I am not asking that you agree with the fees. Go to the place that best suits your needs.

Just understand that the infrastructure and support needed to manage these systems is going to get more expensive...not less. We structure fees to meet the needs of our business and minimize the loss of the best customers. Your spending habits and style may not fit the needs of the commerical giants. Drop me a note, we'd love to have you at my bank.

(Just remember, FDIC insurance, and penalities for early withdrawls......)

[Captiva]

Just Friday attended a conference held by bank/thrift equity analysts. One made the point that the Street mistakenly/ignorantly rewards institutions (via higher stock price) for increasing the risk-free asset of fee income - even though it harms the efficiency ratio. [I didn't quite grasp how this deteriorates the efficiency ratio - anyone?]

[Newbomb Turk]

Fleet is one of the BIGGEST RIPPOFFS in the biz.

[cva66snipe]

Well I guess as much as possible if my bank starts this I will write as many checks as possible. This is so they can process the transfer the hard and expensive way. There is no way even with the expense of ATM machines that Debit Cards can cost more than processing written checks. Especially those written like mine with poor handwriting.

The one major convenience with a debit card is if you have direct deposit as a Retiree ect you can drive to anyone's ATM and for a small fee withdrawal a sizable sum of cash. That fee I can understand a justifiable fee as it is not your bank. But to charge a fee for a purchase with a debit card is RIPPING THE CONSUMER OFF! These arrogant Greed Lords already in most cases get a monthly service charge.

[Centurion2000]

Ridiculous. Debit card users are saving banks millions of dollars in processing fees with debit cards. Not to mention the millions of dollars they are saving with ATM machines (not having to hire as many tellers). I will never pay 50 cents to use my debit card, even if it means trudging back to the bank to get cash like in the bad old days.

The trick is that the credit companies usually charge the merchant a percentage to process it, not the customer. At least that's why my gun dealers explain the 5% surcharge to purchase with a credit card rather than cash.

[PFKEY]

I am now fighting with an internet provider...

Bet we could have a lively thread with a title like that.

[Timesink]

It's price-gouging sh!t like this that causes people to vote for RATS. You can't function in this world without bank accounts.